Neutral Investing

["Bob Young" <polaris3@xxxxxxxxxxxxxxx>]

Is anyone familiar with the concept of 'Neutral investing', otherwise known as 'hedged pairs'?
This is a stock investment strategy involving the selection of a pair of stocks in the same industry gorup.
My understanding is that one searches for the most undervalued and the most overvalued stocks in that 
group, and then buys the undervalued one and sells short the overvalued one, in monetarily equivalent 
quantities.
Since both stocks should, over time, move toward a fairer valuation, the expectation is to profit from this 
convergence, independently of overall market movement.  Even if the market goes sideways, the 
undervalued stock should, if the fundamentals are supportive, gain in value, while the cooling market fever 
should reduce the appeal of the overvalued stock, causing it to fall.  If the overall market declines, then both 
stocks will decline with it, but the overvalued one should fall faster as the higher PE ratios are usually the 
first to deflate in a bear market.
I find this prospect attractive, and would like to find out more information.  I have little idea of how to judge the 
fair valuation of a stock, and would like to find a resource which can give me a ranking of stocks within the 
same industry group based on under- and over- valuation.  Alternatively, a listing of all the stocks within an 
industry group would be helpful, if someone can suggest the criteria to apply in order to reach a fair valuation 
for each stock.  On a simplistic level, I could simply list the stocks in order of descending PE multiple, but I 
am sure there are other fundamental factors to consider in making a wise pair of selections.

Any and all suggestions would be appreciated.
Bob Young